What Romney Wants You (and Ohio) to Forget About the GM Rescue

October 23, 2012

Monday night’s debate between President Obama and former Governor Mitt Romney was about foreign policy. But one of the sharpest exchanges was over President Obama’s rescue of General Motors and Chrysler—and whether Romney had opposed it. Romney said he had not.

That’s a distortion, at best, or a flat-out lie, at worst. It’s impossible to know for sure because Romney has made different and, at times, contradictory statements about the issue.

I hope to have more to say about the auto industry rescue later. But, for now, here’s what Romney said on Monday evening during the debate:

I said they need—these companies need to go through a managed bankruptcy. And in that process, they can get government help and government guarantees, but they need to go through bankruptcy to get rid of excess cost and the debt burden that they’d—they’d built up.

Obama challenged him at that point, suggesting Romney had not called for providing government assistance. Romney disagreed.

You can take a look at the op-ed... I said that we would provide guarantees, and—and that was what was able to allow these companies to go through bankruptcy, to come out of bankruptcy. Under no circumstances would I do anything other than to help this industry get on its feet. And the idea that has been suggested that I would liquidate the industry, of course not. Of course not

“The op-ed” that Romney mentioned was a column that appeared in the New York Times in late 2008. And it’s been the source of considerable confusion, because the article itself was more nuanced than the headline, “Let Detroit Go Bankrupt.” (For that reason, I actually criticized the Obama campaign for using the headline in an early advertisement.) As Romney has correctly pointed out, he never said he wanted the companies to go through liquidation. He said he wanted a “managed bankruptcy” in which the companies reorganized their operations, downsizing but continuing to operate—ideally, in a leaner, more profitable form.

This is, in fact, what both Chrysler and GM eventually did, under terms set by Obama. But the key question, in late 2008 (when President Bush approved the initial, short-term rescue) and again in spring 2009 (when Obama approved the second, long-term rescue) was how the two car companies would get money to reorganize. A company can’t operate while in bankruptcy if it can’t pay its bills. And it can’t pay its bills if it can’t get loans.

In normal economic times, companies turn to banks and private investors. But that was not possible in late 2008 and early 2009, because the financial sector was in crisis. The only realistic source of financing was Washington. If Obama had not approved the loans, most likely the companies would have had nowhere to turn, leaving liquidation as their only recourse. The effects on the midwest and quite possibly the rest of the country would have been devastating.

Did Romney support Obama’s decision? Did he support putting taxpayer dollars on the line—at a time when, let's not forget, the public already had a severe case of bailout fatigue? In the Times column, Romney wrote of providing “government guarantee.” That’s not the same thing as government loaning the money directly. And Romney wrote specifically of financing in the "post-bankruptcy" period, which isn't the same thing as financing during bankruptcy.

Still, the Times op-ed, written months before Obama made his decision, isn't definitive. And when Obama first made his decision, Romney initially said some positive things, hinting that he supported the rescue plan. But the support was as tentative as it sounded. Weeks later, in a National Review blog item criticizing one proposal for GM restructuring, Romney wrote that government's proper role was to "backstop the post-restructuring debt." (He also predicted that the proposal, similar to the final one, would "make GM the living dead.")

Later, as the campaign for the Republican presidential nomination unfolded, Romney became more openly critical of the entire rescue—referring to it repeatedly as a “bailout” and criticizing the use of taxpayer dollars. One of the clearest statements on this specific issue came in late 2011, during a CNBC debate of Republican presidential contenders:

My view with regards to the bailout was that whether it was by President Bush or by President Obama, it was the wrong way to go. I said from the very beginning they should go through a managed bankruptcy process, a private bankruptcy process. We have capital markets and bankruptcy... My plan, we would have had a private sector bailout with the private sector restructuring and bankruptcy with the private sector guiding the direction as opposed to what we had with government playing its heavy hand.

Towards the end of the primary campaign, when Romney was more concerned about winning support in Michigan and less concerned with alienating conservatives, Romney adopted a more congenial tone. He downplayed his criticism of the rescue and emphasized, as he did on Monday evening, that he had hoped the companies would survive and reorganize. But, even then, Romney was critical of the rescue as "a $85 billion sweetheart deal disguised as a rescue plan."

The most generous interpretation of these and other statements is that Romney has been inconsistent and politically craven. The least generous—and, I would argue, more accurate—is that he opposed the rescue of Chrysler and GM, a decision that saved hundreds of thousands if not millions of jobs.

Update: I threw in a few more quotes from Romney. For more on his auto bailout rhetoric, see Steve Benen. And for more details about the bankruptcy process, and why Romney's preferred solution was different from Obama's, see Jacob Adlerstein in the Huffington Post:

Romney was a vocal critic of the auto bailout, and most notably of the billions of dollars that the government loaned GM and Chrysler in the months preceding their bankruptcy filings. Implicit in his critique, however, is the belief that the restructurings of GM and Chrysler would have been just as successful (or more so) had the companies immediately filed for bankruptcy and only thereafter commenced negotiations with their stakeholders. This is known as a "free-fall" bankruptcy, and while many large and systematically important companies have successfully emerged and prospered after such bankruptcies (for example, most of our domestic airlines), many have also cratered, as such bankruptcies are generally recognized to be far more lengthy and costly, with an outcome that is far less certain. Indeed, no bankruptcy professional would counsel a free fall bankruptcy when an equally effective pre-negotiated bankruptcy is achievable.

However, even if a free-fall was, for whatever reason, Romney's preferred prescription, the vital question his proposal left unanswered was who, if not the federal government, would have financed these free-fall bankruptcies? The Obama administration believed that its loans to GM and Chrysler, especially the loans made before they filed for bankruptcy, were necessary to permit the companies to continue operations while they negotiated with their stakeholders. Neither GM nor Chrysler, the administration concluded, could access the capital markets, both because of their own financial weakness as well as the collapse of financial markets around them in the wake of Lehman's demise. The government, in short, was a true lender of last resort.